Form groups of two to six persons each. The groups should each select
a simple product or service. Be creative, but do not pick a product or service that
is too complex. For those having difficulty choosing a product or service, some
possibilities are
One dozen chocolate-chip cookies
A ten-mile taxi ride
One copy of a 100-page course syllabus
A machine-knit wool sweater
A hand-knit wool sweater
One hour of lawn mowing and fertilizing
A hammer
1. Each student should individually estimate the direct materials and direct
labour inputs needed to produce the product or service. For each type of
direct material and direct labour, determine the standard quantity and standard
price. Also, identify the overhead support needed, and determine the
standard overhead cost of the product or service. The result should be a total
standard cost for the product or service.
2. Each group should compare the estimates of its members. Where estimates
differ, determine why there were differences. Did assumptions differ? Did
some members have more knowledge about the product or service than others?
Form a group estimate of the standard cost of the product or service.
3. After the group has agreed on a standard cost, discuss the process used to arrive
at the cost. What assumptions did the group make? Is the standard cost an “ideal”
standard or a “currently attainable” standard? Note how widely standard costs
can vary depending on assumptions and knowledge of the production process.